Broadcom, Intel & Dell – Enterprise in charge

Smartphones continue to languish.

• Results from players in both the enterprise and consumer space indicate that while the consumer sector remains difficult, enterprise demand appears to have bottomed which in some places is being helped by the current generative AI frenzy.
• Broadcom reported results that met expectations but guided weakly as its exposure to the smartphone market continues to be a drag on its performance.
• Broadcom’s guidance was in line with expectations but clearly, the market was hoping for more as Broadcom’s creation of buzz around its exposure to generative AI failed to deliver concrete results.
• Broadcom does have some exposure to the data centre, but I think that any positioning of Broadcom as an AI company is spurious at best.
• However, weakness in consumer was offset by a bottoming in enterprise demand which was echoed by Dell which also reported results.
• Dell’s FQ2 23 revenue fell by 13% but crucially, this was less than expected which combined with cost cuts allowed profits to also come in ahead of expectations.
• This is expected to continue into the next quarter with full-year revenues now expected to fall by 12% rather than the 15% it had previously predicted.
• This contrasts with HP’s results where it cut its forecasts and is because Dell has more exposure to the data centre market than HP which is very PC and device-centric.
• Intel also chimed in with comments from CEO Pat Gelsinger who said he felt good about the coming quarter and that the company was tracking ahead of the mid-point of the guidance that it gave a few weeks ago when it reported Q2 2023 results.
• PC processor inventory appears to have normalised, and Intel promised that it was going to “show up” in the AI training market which at the moment is utterly dominated by Nvidia.
• Intel has been saying this for years but has made very little progress to date largely because it doesn’t really understand that Nvidia’s success is not about its silicon but about its software platforms.
• I haven’t seen anything that would lead me to believe that Intel has figured this out yet and so I remain pretty sceptical that it is going to take a piece out of Nvidia anytime soon.
• The net result is that the PCs being sold to enterprises are stabilising which has allowed the inventories of chips to also stabilise but the outlook for smartphones going into Q4 remains difficult.
• This has pretty much been the theme for all of 2023 and means that stabilisation and recovery in smartphones is unlikely before 2024.
• It looks like PCs will stabilise and recover slightly before smartphones, but PCs are being helped by enterprise spending while smartphones are entirely consumer.
• Furthermore, I expect the recovery to be slow because there is no sign of China’s economy really recovering but is likely instead to limp along until President Xi decides that the economy comes before the party.
• This combined with the Western economies unlikely to normalise inflation before the middle of next year means that there is still a bit more grind to go.
• Against that backdrop, the technology sector remains a stock pickers paradise with wide ranges in terms of share price performance.
• I do not find Dell or Broadcom interesting but if one can have confidence that Intel really is on 10x PER or less, then it is worth a look.